Russia’s Transformation: The Prospects for Democracy
Russia’s Transformation:
The Prospects for Democracy
ALAN ROUSSO
Director
The Carnegie Moscow Center
H
ow should we look at Russia’s flawed transition from communism to
date and its prospects for further reform? There is an old joke describing how to sort out the optimists from the pessimists in Russia: a pessimist says that the situation is so bad it couldn’t possibly get any worse; an optimist
says, No, it could still get worse!
By almost any measure you choose—the health and welfare of the Russian
population, income distribution, industrial production, domestic and foreign
investment in the Russian economy, macro-economic stability, the creation of
democratic institutions, the development of civil society—the transformation of
Russia has been arduous and its successes few.1
Several questions naturally arise: What went wrong? Who is to blame? Where
is Russia headed? Since the August 1998 economic crash, a watershed event in the
transition which signaled the end of the Yeltsin era of reform, many answers have
been given to these and other questions, though none of them definitive. “Getting Russia Right” is an enterprise well worth pursuing, in all the various senses of
the phrase: it is critical that Russian officials take steps to put Russia on the right
course of democratic and market-oriented reform, that we in the West understand
Russia and its complicated transformation better, and that we fine-tune policy and
learn from past mistakes.
Winter/Spring 2000 – Volume VII, Issue 1
107
Alan Rousso
What Went Wrong?
A significant part of Russia’s current political, social, and economic predicament
stems from a series of wrong turns and mistaken judgments by the first president
of democratic Russia, Boris Yeltsin, by his group of so-called young reformers,
and by the longest-serving prime minister during the past decade, Viktor
Chernomyrdin. But the decisions (and non-decisions) of the Yeltsin government
as well as the end results must be seen in proper context.
First, the Russia Boris Yeltsin inherited from the communists was already
well on the way to economic ruin and political bankruptcy. Mikhail Gorbachev’s
perestroika in Russia from 1985 to 1991 opened the door to democracy and markets, but in the end led the country down a corridor of confusion, disarray, and
disappointment. In 1989, the average salary in the Soviet Union was 200 rubles
per month, or $33 dollars at the official exchange rate (today it is closer to $100
per month); the Soviet Union placed seventy-seventh in the world in personal
consumption; and Russians spent between forty and sixty-eight hours a month
waiting in line for basic food and household products. In 1991, just before Boris
Yeltsin came to power, domestic production had declined by 13 percent that year,
the budget deficit amounted to 30 percent of GDP, annual inflation was in the
neighborhood of 93 percent, and the country had defaulted on its international
loans.2
Second, the size of the task before reformers was enormous and unprecedented. No other state among those studied by “transitologists” had ever attempted the triple transition of Yeltsin’s Russia on such a scale, moving from an
empire to a republic, from command planning to a market economy, and from a
totalitarian form of government to a democracy.3 Without workable models for
navigating this uncharted territory, mistakes and setbacks were inevitable.
Finally, before moving to a discussion of “What Went Wrong?” it is important to keep in mind what went right. Almost a decade after Yeltsin’s first prime
minister, Yegor Gaidar, prescribed the first doses of shock therapy for Russia (and
fifteen years since Gorbachev launched perestroika), the strength of democratic
ideas and belief in market-based solutions to the country’s main economic problems continue to dominate both popular and elite opinion. Not one of the main
political organizations contending for seats in the 1999 Duma election advocated
non-democratic governance or non-market organization of the economy in its
platform.4 The frontrunner in the upcoming presidential election, Vladimir Putin,
who (at the time of the writing of this article) is expected to win in a landslide
victory, recently published a brief abstract of his political platform, wholly endorsing both democracy and markets. Despite the missteps on both fronts, these
core ideas have taken firm root in Russia, suggesting that not all efforts went
unrewarded.
108
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
Indeed, Russian political life is considerably more pluralistic today than
at any time in the country’s history—opposition forces have unprecedented opportunities to criticize the government and organize political movements to contest it in elections that are held regularly and on schedule with generally high
turnout. Similarly, individual rights and liberties—such as freedom of speech and
assembly, the right to travel, access to uncensored media, and the right to pursue
one’s religious beliefs—are protected today at far greater levels than in communist or tsarist times and are routinely mentioned in opinion polls as the most
significant achievements of the Yeltsin era. And as many have argued, the economic reforms—particularly price liberalization and privatization—have, while
painful, managed to succeed in dismantling the old Stalinist command structures
and leave in their place market (or quasi-market) institutions, albeit of an imperfect nature.5
But this only tells part of the story. The August 1998 collapse and the
devastating poverty and income inequality which persist in Russia did not come
from out of nowhere, and a full account of Russia’s record on reform must begin
and end with its failures. What were the main mistakes?6
On reflection, it is clear that the Yeltsin team made serious miscalculations
in both the politics and the economics of reform. On the political side, Yeltsin
created a system of power which depended heavily on the role of a supreme leader/
arbiter and actually discriminated against the creation of a more “normal” democracy with functioning political parties, a well-articulated civil society, and a
transparent system of interest intermediation which could manage expanding
political participation.7 With weak institutions for aggregating competing interests, compact groups with clear preferences—like the military and business interests—were better able to organize politically than large diffuse groups like average
voters. As a result, national policy was routinely captured by narrow interest groups,
to their own private benefit and often at the expense of unorganized sectors of
society. Compounding the problem was the fact that the 1993 constitution gave
disproportionate power to the president, stripping the legislature of any real influence over policymaking and making it a less legitimate institution of interest
articulation for average voters.8
Another serious political failing was the inability to create an independent
judiciary and effective court system and build a society based on the rule of law.
Though good laws were written and adopted, too little attention was given to
building up the main bodies charged with implementation, such as the civil service and police force. The courts are heavily politicized and corruption has been
the order of the day at every level of government and throughout the law enforcement agencies.
In addition to weak institutions, the Yeltsin system suffered from weak
political will. In the early years of Yeltsin’s rule, he seemed to have a political
Winter/Spring 2000 – Volume VII, Issue 1
109
Alan Rousso
vision and charisma to spare, but he caved in too readily to narrow political and
economic interests who sought to profit at the country’s expense. Flashes of strong
will—as in the bombing of the Russian White House in 1993 where anti-government parliamentary factions had taken refuge, or the first war in Chechnya—
only sullied Yeltsin’s democratic credentials among liberals at home and observers
abroad. Yeltsin’s biggest failure in this regard was his inability to build national
consensus for his reImposing reforms on an unwilling forms when he had the
population from the top down rather political authority to do
so—during the brief
than building support from the bot- period of “extraorditom up, the reformers never built the nary politics” which folsocial capital to maintain momentum. lowed the collapse of
the Soviet Union—and
instead his dependence on more blunt instruments to bludgeon the opposition.
By the end of the Yeltsin era, with the president in ill health and increasingly
willing to indulge his penchant for wholesale government changes to keep everyone off balance while allowing the country to pay the heavy price for his capriciousness, legitimacy and political will were completely absent.
On the economic side, the mistakes were as, if not more, serious. Here it
seems that in large measure the Yeltsin team got both the politics and the economics of economic reform wrong. The main political mistakes were again in the
failure to create appropriate institutions which were needed to reinforce market
relations: stable and transparent financial markets, a fluid labor market, a social
safety net, and perhaps most importantly a reliable legal framework which could
enforce contracts and adjudicate disputes, monitor and enforce shareholder rights,
protect basic property rights, ensure competition, and fight corruption.9 The basic attitude of the reformers was that there was not sufficient time to carry out
those clearly necessary tasks, since the reform ideology had not yet penetrated the
public mindset deeply enough to ensure continued momentum. Before the communists or other retrograde elements in society could take hold of the reins of
power, the reformers felt it was necessary to move quickly on a couple of fronts
(price liberalization and privatization) and they felt quite certain that Bolshevik
methods for doing so—that is, “revolution from above”—would suffice for the
job.10 This failed for one simple reason: the lack of success of those early reforms
in the public mind only created new sources of opposition for the reformers, and
their methods failed to win any new converts to their cause on more principled
grounds.
Beyond the technical problems of failing to build adequate institutions to
support a market economy, the Yeltsin team also failed to build a lasting political
constituency for reforms. For example, the inflation that naturally came with
price liberalization helped to wipe out the tender shoots of a middle class in Rus110
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
sia—the core constituency for democracy and further economic reform—and
the fact that it was carried out prior to de-monopolization meant that large, socially indifferent enterprises freely extracted monopoly rents from an already impoverished population.11 More broadly, by choosing to impose reforms on an
unwilling population from the top down rather than build support for them
more systematically from the bottom up, the reformers never built sufficient social capital—particularly trust in their motives and responsiveness to the public—to maintain momentum when the going got tough.12
Finally, a related key miscalculation was the reformers’ belief that the main
challenge to change would come from the economic losers who might organize
and, through access to power via free elections, derail the reform movement.13 In
fact, the true enemy was not the losers from the reform but the winners. Those
who gained fantastically in the early stages became extremely unwilling to see
reform progress beyond a “partial reform equilibrium,” and they had the political
power to ensure that this in fact could not happen.14 During the Chernomyrdin
years, virtually none of the hard choices were made and the “iron law of oligarchy” was born out in earnest.
And how did those winners earn their positions of wealth and privilege in
the first place? This is where the economic missteps of the reformers figures into
the story. Perhaps the biggest blunder was to permit the creation of a new class of
super-wealthy “oligarchs” who hijacked the reform effort, stalled political reform,
and squandered public trust in Yeltsin. Through errors of omission and commission, Yeltsin and his reform team allowed a small group of extremely well-placed
business tycoons to exploit Russia’s enormous riches, occupy key political positions from where they could consolidate their gains and raise barriers to entry for
potential competitors, and lead the Russian public to believe that Boris Yeltsin’s
mission was to build “crony capitalism” rather than democratic capitalism in Russia.
In the early stages of reform, these billionaire businessmen were created by
granting them free access to extremely lucrative arbitrage opportunities in the sale
of energy and other natural resources on foreign markets. Though most prices
were freed in 1992, prices on these commodities were held stable and well below
world market prices. Those with access to them could purchase on domestic markets at artificially low prices and sell on world markets. Having gotten obscenely
rich in a short time, the energy barons opened their own “banks” in the largely
unregulated Russian financial market. And since the Russian government had
not created a proper treasury to conduct fiscal policy, it naturally turned to these
new financial institutions to handle federal budget money. This provided yet another source of tremendous rents for the bankers—the rich get richer, and more
powerful politically.
Another, still more controversial source of the accumulation and concentration of wealth in Russia’s stage of early capitalism was privatization. The architect of this phase of Russian reform was Anatoly Chubais, and he was helped by a
Winter/Spring 2000 – Volume VII, Issue 1
111
Alan Rousso
team of experts from the United States with strong backing from the U.S. Agency
for International Development. Their guiding principle was that privatization
had to happen fast and it had to happen on a large scale. Waiting to install a
proper regulatory framework which would prevent political tampering would
only give the enemies of radical reform a chance to regroup. Even if the economy
was privatized badly, they reasoned, eventually poorly managed enterprises would
be sold off to more responsible owners and overall efficiency would improve. And
in some sense the undertaking was a success—two-thirds of Russian industry was
privatized by the end of the stage of “voucher” privatization and more than 40
million Russian citizens became owners. But the theory that efficiency would
triumph in the end due to the textbook logic of market economics never came to
pass, and the skewed income distribution that the process wrought managed to
turn Russia into that rare case of a country that suffers both a shrinking national
economy and rapidly growing inequality.
What many of the new owners came to realize was that it was far more
profitable to strip assets from their enterprises and store the money overseas than
to improve methods of production and invest in capital stock. With no real competition, no hard budget constraints—since the government weakly enforced bankruptcy legislation—and a steady stream of implicit government subsidies which
none of Yeltsin’s prime ministers mustered the political will to curtail, owners
found it much more convenient to stay in business even at absurdly low levels of
productivity.15 An unstable tax regime, a weak domestic banking sector, and an
unpredictable government made it appear safer to keep money in foreign banks
(or, for the average saver, inside mattresses), giving rise to a capital flight problem
estimated at over $25 billion per year.
As if to add insult to injury, the government then consented to what one
pair of journalists refer to as the “historic swindle” known as the loans-for-shares
scheme of 1995.16 In that year, shares of some of the country’s most valuable
industrial and natural resource holdings were practically given away to well-connected businessmen in exchange for loans to the cash-strapped government. Shares
in the country’s largest oil and gas concerns and a major metals combine were
sold off in closed auctions, where insiders (usually representatives from the firms
management) “won” with bids only slightly over the government-set minimum
bid. This was undoubtedly the low point in the reform campaign, and even ardent supporters of Chubais and his team admit that this was a signal failure which
had lasting consequences.
The referendum on reform came in the winter of 1995 with the elections
for the Duma, where the communists, campaigning on the themes of government incompetence and squandering of the country’s wealth (how ironic!) managed to rally the angry electorate that had been swindled by Yeltsin and Chubais
and won 23 percent of the vote. Yeltsin managed a comeback in the summer of
112
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
1996 with his re-election as president, but to accomplish this he had to rely on
the help of all his “oligarchs,” who put their differences aside and pooled their
individual resources (which involved mostly money and control over the national
media) to ensure Yeltsin’s victory. A brief boomlet in the economy followed, but
the triumph was short-lived, as all the Yeltsin government’s chickens came home
to roost by August of 1998.
The August 1998 Crisis
In 1997 the Russian ruble was among the world’s most stable currencies and the
stock market was the top-performing exchange; economists and policymakers
throughout the world—not to mention within the country itself—believed that
Russia was well on its way to becoming a market economy. After August 1998,
the situation was entirely reversed: the ruble plummeted in value and the stock
exchange was in shambles. What happened?
Part of the answer, as detailed above, is that the success of marketizing
reform in Russia was illusory—it was only the stock market that was outperforming expectations, not the Russian economy per se, which was still experiencing
negative real growth, lacked competition, failed to create incentives for the establishment of a small business sector, and in some ways encouraged a corrupt and
unstable banking system. Part of the answer is also that the system that was in
place in 1998 was too weak to withstand a series of external shocks outside its
control.
The greatest success of the Russian reform effort was macroeconomic stabilization—low inflation and the stability of the Russian ruble. The Russian government still spent too much every year, but it resisted the temptation to print
money to finance its deficit—which would have led to inflation—and instead
relied on issuing short-term debt (GKOs), eurobonds, and other interest-bearing
financial instruments. The achievements of macroeconomic stabilization rested,
therefore, on the faith of domestic and international investors in the government
and its ability to service this debt. Only then would they agree to roll over these
loans. More effective methods of achieving a balanced budget—a rationalized tax
system with improved tax collection and reductions in spending—were either too
difficult to achieve technically or politically or simply deferred to a later time.
Although the government’s debt was not large by international standards, a
large portion of it was short term, which meant that it had to be re-financed
frequently and was highly sensitive to investor sentiment. Debt servicing obligations became extremely high once sentiment among investors shifted, requiring
the government to offer much higher rates of interest on these instruments to
attract investors; by the summer of 1998 the situation was hopeless. Investors
refused to roll over their loans as they began to fear that the government could
Winter/Spring 2000 – Volume VII, Issue 1
113
Alan Rousso
not service its debt, and as a result they ran for the exits. This brought on a
collapse of the Russian financial house of cards, leading to ruble devaluation,
forced domestic debt restructuring, and a ninety-day moratorium on servicing of
foreign-denominated debt.
What spooked investors? There were internal causes and external ones. Internally, there were fears that Russia’s debt management strategy—issuing shortterm GKOs rather than longer-term paper—was unstable; there was lack of confidence in the Russian banking system which in large measure consisted of institutions which never functioned as actual banks and was cushioned from foreign
competition due to the government’s protection of this sector; and there was
uncertainty about the ability of the Russian government to solve the fundamental
problems of tax reform, corruption, and enterprise restructuring with an oppositionist Parliament standing in the way.
Externally, the main factors are well known: the Asian crisis and the collapse of emerging markets which followed in its wake; and the drop in world oil
prices. The Asian contagion was the result of a reappraisal of risk by international
investors after seeing their portfolios lose value in the formerly strong economies
of East Asia, and of a liquidity problem—investment funds that lose money in
one area are forced to sell assets elsewhere, which drives down prices.
The drop in world oil prices was linked to this—as Asian economic performance slipped, worldwide demand for all commodities, energy included, sagged,
driving down prices. In the case of oil, this was not helped much by a supply
surge based on recent new discoveries of oil in the North Sea and Caspian basin.
Commodities make up 80 percent of Russia’s exports, and its largest export category is energy. Russia’s current account went from a surplus of $3.9 billion in the
first quarter of 1997 to deficit of $1.5bn in the first quarter of 1998. This turnabout in Russia’s trade activity was among the main indications to economists
that the Russian ruble had become overvalued at six to the dollar.
One inescapable lesson from the 1998 collapse in Russia is that an undertaking as complicated and painful as transition to a market economy requires
political will and domestic consensus. Russia had neither. The reform movement
in Russia depended almost entirely on a single individual—President Yeltsin—
whose commitment to reform wavered over the past eight years, as evidenced
most clearly by the wholesale change in government four times in eighteen months.
The government of Prime Minister Chernomyrdin was never unified behind serious reforms and never showed the courage to take on entrenched corporate and
financial interests; instead key players fought amongst themselves, all the while
protecting the wealth of their patrons and their own power and privilege.
With common purpose and political will sorely lacking within the government and the Presidential administration, there was little chance of overcoming
(or co-opting) stiff opposition from the communist-dominated Duma on bud114
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
getary austerity, tax reform, a land code, and bankruptcy procedures, all of which
became necessary for achieving the next stage of market reform.
The most notable political consequence of the 1998 crisis was that it
hastened the end of the Yeltsin era in Russia’s postcommunist transition. Though
he hung on for another sixteen months, and despite the political comeback the
Kremlin managed to stage in the 1999 Duma election, the country remained in a
holding pattern after August 1998. On the reform front, the caretaker governments of Yevgeny Primakov and his successors did little more than keep the country from going to pieces, offering no new plan for Russia’s post-Yeltsin development. With elections in the offing, no one was in a hurry to launch anything too
ambitious and too prone to failure, which could become a rallying point for the
opposition.
Who Lost Russia?
Shortly after August 1998 the first murmurs of a “Who Lost Russia?” debate
could be heard in Washington, DC. With the presidential primaries just a little
over one year away, there was hope particularly among Republicans that some of
Russia’s failures would stick to the Clinton Administration and their point man
on Russia, Vice President and presidential candidate Al Gore. When a moneylaundering scandal broke the following summer, suggesting that over 10 billion
U.S. dollars (some of it possibly originating from IMF loans) might have been
spirited out of the country by criminals in league with government officials, the
heat was turned up a notch. As much of the debate was politically motivated to
sully the democrats’ reputation on foreign policy, it obscured the reality and complexity of the Russian reform experiment. The most direct and convincing answers to the question “Who Lost Russia?” were given by senior Clinton Administration spokesmen and independent analysts alike: “Russia is not lost,” went one
response, and “Russia was never ours to lose,” went another. Both have merit, as
the discussion above underscores. The most egregious mistakes were made by
Russian officials themselves, and even so the country has not become hopeless.
Nevertheless, a few judgments can be offered on the degree to which the West—
particularly the United States—helped or hurt the situation. In the final analysis,
U.S. policy, though mostly well intentioned, was at times misguided.
As in the case of assessing the Russian reformers, it must be acknowledged
first that the size of the task for U.S. policymakers—re-conceiving its relations
with Russia after forty-five years of cold war and managing post-Soviet decline—
was enormous, and second that much of what the Bush and then Clinton administrations did in this area had salutary effects both from the perspective of American national security and Russian welfare. One standout success was the safe and
effective management of the Soviet Union’s military withdrawal from Europe and
Winter/Spring 2000 – Volume VII, Issue 1
115
Alan Rousso
the de-nuclearization of Belarus, Kazakhstan, and Ukraine. Further cooperation
on dismantling Russia’s nuclear arsenal and reinforcement of control mechanisms
at nuclear installations, thanks in large part to U.S. funding through the NunnLugar program, has served the interests of both the United States and Russia.
However, the record over the past decade also reveals several policy failures
and errors in judgment which the next generation of Western leaders must learn
from. They can be placed in three broad categories: (1) failing to take active steps
to re-integrate Russia into the international system and particularly European
security and economic institutions; (2) over-committing support to a core group
of political leaders, including Yeltsin, while turning a blind eye to the Russian
leadership’s indifference to liberal democratic norms; and (3) over-emphasizing
the economic dimension of Russia’s transformation and accepting too readily the
home truths about how that ought to be done peddled by a small coterie of
Yeltsin’s economic advisers.
The most general and overarching problem with U.S. policy formulation
in the past decade has been the inability to thoroughly re-conceptualize the relationship to Russia and, as is the norm with systems transition, re-integrate the
losers from the last major war into a new security and political order. Assistance
on the order of the Marshall Plan—the $17 billion European Recovery Program
which President Harry Truman and his Secretary of State George Marshall pried
from the conservative, Republican-dominated Congress—was never a realistic
policy option, since a key ingredient was missing: the systemic security threat that
the Soviet Union and its postwar expansionism conveniently provided as a justification for such massive, unprecedented generosity. Unfortunately, the threat of
loose nukes and loose controls over fissile materials and nuclear know-how have
not been enough to inspire a similarly enlightened and forward-thinking foreign
policy gesture from the United States.
Moreover, the United States and its allies in Europe continued to take their
cues from the old Cold War policy playbook, since no serious replacement for the
containment doctrine was thought up in Washington. For example, although
NATO expansion may have been designed to enlarge the security zone in Europe
which had proved so stable for the past half century, it couldn’t help but be seen in
Moscow as a potential threat. After all, states look at others’ capabilities rather
than their intentions—which can easily change—when assessing their national
security. That decision, along with others of a similar vein,17 has done much to
squander the good will and positive sentiment toward the West which existed in
large measure after the fall of the Soviet Union.
Although the West had no choice but to work directly with the government chosen by the Russian people in free elections, the bolstering of Boris Yeltsin
and of policies meant to support him in the end deflected from the goal of building real democracy in Russia. Considering that the main grand foreign policy
116
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
theme being pushed by post–Cold War U.S. leaders was the promotion of democracy, this struck an even more discordant note. The United States did not
strenuously condemn the Yeltsin government when it rolled in tanks to forcibly
dislodge rebellious parliamentarians from the Russian White House; it did not
protest the creation of a new constitution in 1993 which gave broad powers to
the president and enfeebled other elected bodies; and in describing the brutal and
ultimately failed war against Chechen separatists from 1994–96, President Clinton
likened Yeltsin to a Russian Abraham Lincoln. Rather than stand up for real democracy at every turn, the Clinton Administration chose to stand by a few chosen individuals with whom it has thrown in its lot, even when confronted with
evidence of their misdeeds and corruption.18 This too did much to discredit the
United States in the eyes of Russian citizens whose hopes of establishing real
democracy began to fade.
Finally, the use of economic policy to accomplish the West’s political goals
was in principle unquestionable, but the content of that policy was at times misguided. Direct U.S. aid was too heavily concentrated on technical economic problems like privatization, which was carried out in such a way as to make Washington seem complicit in the stealing of the Russian state.19 When USAID gave over
$2 million to buy pipeline valves for Gazprom, a company worth billions which
spent frivolously and was a notorious tax evader, it looked very much like officials
in Washington had lost sight of their mark. Similarly, AID and the U.S. government as a whole failed to criticize the loans-for-shares scheme, which they knew
about and implicitly condoned. As for the international financial institutions,
IMF loans made in 1995, 1996 and 1998, when Russia was far from meeting
well-known economic criteria for such lending, indicated how thoroughly politicized these institutions could become when powerful member countries intervened. The 1995 loan was released against the background of the Chechen war,
and critics maintained it not only lent implicit support to the Kremlin but also
financed the war directly; the 1996 loan was released against the background of
the presidential election which, many in the West feared, Yeltsin might lose; and
the 1998 loan was released against the background of the unstable debt pyramid
built up under Chernomyrdin, which was in danger of collapse following a shift
in investor sentiment.
Whither Russia?
Russia in the year 2000 started off in a way not expected by anyone: with President Boris Yeltsin’s resignation. The move was classic Yeltsin—unpredictable, dramatic, and bold. By defying many of his detractors, who insisted that the Russian
president would refuse to step down even when his constitutional term in office
ended in June 2000, Yeltsin may have rescued his legacy and sealed his place in
Winter/Spring 2000 – Volume VII, Issue 1
117
Alan Rousso
the history books as the father of Russian democracy. It was also a fitting final act
after pulling off yet another remarkable political comeback in the last months of
1999, when his besieged and seemingly addled Kremlin managed at last to settle
on a chosen successor, restore the public’s faith in government, build a new “party
of power” from scratch, and beat back a fierce political challenge from former
Prime Minister Evgeny Primakov and Moscow Mayor Yuri Luzhkov.
Yeltsin’s departure signals both significant change and continuity in Russian politics. With the transfer of power to acting president Vladimir Putin, the
style of political leadership will undoubtedly change cosmetically if not fundamentally. At forty-seven, Putin is far younger, more energetic, and more capable
of serious attention to politics than the infirm and elder Yeltsin. His ascetic personal habits (he does not smoke or drink hard alcohol) and his declared intolerance for laziness, corruption, and slovenliness in others recalls for many in Russia
Yuri Andropov’s brief political interlude as Soviet leader. On the other hand, Putin
has inherited a set of political conditions and institutions which suggest strains of
continuity in the overall context of Russian politics and possibly its fortunes in
moving beyond the late Yeltsin period of decline and stagnation. The Yeltsin system—with its super-presidentialist constitution, fickle and insecure legislature,
dependence on political “favorites,” and centralized formal power structure
matched with the more informal diffusion of power to the Russian regions—
remains firmly in place and narrows the room for political maneuver that Putin
or any other Russian president will have in coming years.
Putin’s rise has been rapid and his support among the general population is
so strong that the election on March 26 is expected to be more of a coronation
than a contest. When he was appointed prime minister and declared Yeltsin’s
chosen successor in August of 1999, he seemed the most colorless of bureaucrats—uncomfortable in the media spotlight, an uninspiring orator, though a
loyal cadre and a skilled administrator—and this made it appear unlikely that he
would ever fulfill the destiny chosen for him. Indeed, it seemed unlikely that
Yeltsin, who had been trading in prime ministers with increasing frequency, would
even keep him around long enough to give him a fighting chance. By October,
with the Russian military operation in Chechnya humming along unimpeded,
Putin’s stature and popularity began to climb quickly, and before long he emerged
as a frontrunner in the presidential race. There is no doubt that Putin draws most
of his political strength from his association with the brutal war in Chechnya. But
this in turn is emblematic of a set of core characteristics—not bound up exclusively with a single policy—which taps into the psyche of the Russian people in a
deeper, more fundamental way.
Putin represents the values of inner and outer strength, conviction, straightforwardness, and high moral character which were missing in Boris Yeltsin. He
represents ideas of restoring Russia’s greatness, of dealing harshly with internal
118
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
and external foes alike, of putting Russia first, of restoring the essence of former
Soviet glory—that people respected Russia as a great nation. People seem to believe that the same no-nonsense tactics he is using to wipe out terrorism in
Chechnya can and should be used to wipe out corruption, poverty, and disorder
at home.
Putin’s Agenda
Predicting what the country will have in store under Putin’s leadership is still a
complicated endeavor, since his political biography is short and he has kept his
agenda vague before the presidential vote on March 26. As a politician, Putin
seems both unformed and opaque—that is, in some areas, particularly on the
economy, he has not yet decided on the best policy formulas to address the most
important problems facing Russia today, and in others, for example in his understanding on the importance of guaranteeing basic political liberties, he may be
concealing his true intentions in order to secure certain victory. Some of his recent statements, writings, and actions give some clues on how he might rule, but
at this stage one must be careful to separate out promise-them-the-moon campaign rhetoric from a legislative agenda.
The most comprehensive statement released thus far by Acting President
Putin on his overall assessment on Russia’s current predicament and where it must
go in the new millennium came just days before the close of 1999 in a sweeping
manifesto published in the Independent newspaper. In it, he declares himself a
Russian patriot, a committed economic reformer, and a firm believer in democratic values. As for the path Russia must follow to re-capture its former greatness, he is categorical if imprecise: Russia must go forward and not back, it must
proceed along the “highway by which the whole of humanity is traveling…[for]
there is no alternative to it.” One could take this to mean that Russia cannot
avoid being swept up by global forces which are producing wave after wave of
democratic transformations, enforcing market discipline in transition economies,
and empowering individuals through ever-wider access to information.
Still, Mr. Putin is wary of going too fast and losing public support along the
way, a misstep which he seems to believe doomed the Yeltsin era reforms to failure. In order to provide both a basic standard of living for all Russians and maintain political and social support for further change, market and democratic reforms “must be implemented only by evolutionary, gradual, and prudent methods.” What this appears to mean for the new leadership is a more dominant role
for the state in guaranteeing public order, combating endemic corruption, and
guiding the nation’s economy. A strong state, Putin points out, is not an aberration for Russians; it is a natural element of political, social, and economic life.
Russia, he says, cannot aspire to become another Great Britain or United States of
America where liberal values have deep historic traditions.
Winter/Spring 2000 – Volume VII, Issue 1
119
Alan Rousso
Without doubt, Russia needs a stronger state. For the past several years, it
has verged on the edge of state collapse, a situation where the government was
unable to perform basic functions like collecting taxes and providing core public
goods like national defense, a healthy environment, and a stable currency. If what
Mr. Putin and his team have in mind by a strong state is a functional state, then
there is no cause for concern in the recent emphasis on statism. However, it would
appear that Putin’s ambition in rebuilding the state apparatus may go beyond
this; two main worries should be noted here.
First, there is the way in which Acting President Putin has been handling
the situation in the turbulent North Caucusus. From the first days following his
appointment as prime minister in August of last year, Putin has talked and acted
tough in his response to the rebel incursion in Dagestan and later the terrorist
bombings in southern Russia and Moscow. Undoubtedly, the government has an
obligation to defend the country from internal and external threats and must deal
harshly with terrorists. But Putin’s war in Chechnya goes beyond the original
mission of wiping out terrorist base camps and destroying rebel bands while establishing a security cordon around the hostile region; it has now moved to the
point of an all-out war against the Chechen people, using indiscriminate means
which have caused untold suffering among displaced people (at last count, there
were over 230,000 refugees in makeshift camps in neighboring Ingushetia) and a
disturbingly high number of civilian casualties. At one point a warning was issued
to all residents of the Chechen capital city of Grozny (including an estimated
40,000 civilians who were either too sick, too scared, or too stubborn to leave) to
vacate the city within less than one week or face extermination. Such tactics call
into question the government’s commitment to the liberal values upon which
stable democracies are built.
Second, Vladimir Putin’s background as a career officer in Soviet and then
Russian intelligence has raised serious doubts about his belief in an open society.
On his watch, the government has announced that part of its crackdown on internal enemies of the people, corruption, money laundering, and capital flight
will include the establishment of a special agency which will use interception and
screening of all e-mail traffic into and out of Russia as a principal means of surveillance. Russian and foreign media have been prohibited from covering the war
in Chechnya, and independent (read non-pro-government) voices have been
singled out for especially unfair treatment. The arrest of one dissident journalist
in Moscow who was slated to be taken to a psychiatric hospital for tests and the
detention and arrest (and later exchange with the Chechens for Russians held
captive) of another who was filing controversial reports from the war zone around
Chechnya smacks of Soviet-style censorship and intimidation tactics. Clearly the
forces around Mr. Putin recognize the urgency of keeping support for the war
high given how essential that is to the presidential campaign, and they are not
120
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
about to permit a bunch of muckraking journalists to spoil the coronation they
fully expect to occur on March 26. But when one combines incidents such as
these with Putin’s repeated references to the need for a strong and paternalistic
state, it is difficult to resist the temptation to compare his vision of Russia’s future
with the paranoia and xenophobia of the country’s totalitarian past.
Putinomics
Many of the ideas being kicked around the Kremlin these days on how to move
reform into the next phase are being incubated at the newly created Center for
Strategic Research, a think-tank headed by German Gref, a “Chubais man” from
St. Petersburg, which has become home to many refugees from the Gaidar era.
Gref is currently first deputy property minister and has been credited with drafting the economic section of the Putin manifesto, which called for rebuilding the
system of state regulation, stimulating rapid economic growth by encouraging
foreign and domestic investment, pursuing an energetic industrial policy (especially in the spheres of science and technology), carrying out thorough structural
and financial reform, and integrating Russia into the global economy. He, along
with other leading lights of Putinomics, have been consistently, albeit vaguely,
speaking of the need to rebuild the state and other key institutions like the army,
the police force, and the court system before serious structural reform can take
place in Russia. Indeed, with the collapse of the so-called Washington consensus,
which for many years seemed to guide the lending policies of the main international financial institutions, what the Russians are now talking about—building
stable institutions first and engaging in systematic reform second—is a strategy
very much in vogue among the economic Brahmins in the West, first and foremost the former Chief Economist of the World Bank, Joseph Stiglitz.
The real question is what kind of expression these ideas will have in practice. Mr. Putin has been shrewdly playing his hand close to his vest, lest he risk
alienating a large source of votes in the March election. Other than delivering
political pork and going on a bit of a spending spree (raising wages and pensions
and channeling more money to the military), he is wary of venturing out too far
on economic policy before election day. The most notable things he has done so
far in this realm—raising import and export duties, hiking excise taxes on things
like alcohol and tobacco—look more like short-term fixes to fill holes in the
budget rather than strategic economic decisions. The most positive development
in terms of fiscal discipline we have seen is increasing insistence by the government that enterprises make all future tax payments in cash rather than in kind.
Putin and the New Duma
Many of the new lawmakers voted into office in December 1999 rode in on the
very long coattails of Vladimir Putin and his popular war in Chechnya, and there
Winter/Spring 2000 – Volume VII, Issue 1
121
Alan Rousso
is good reason to believe that this Duma will be far less obstructionist and more
ready to cooperate with the government than the previous one. Whereas the previous communist-dominated Duma showed a readiness to cooperate with Yeltsin
only on a narrow range of issues (they passed every one of his budgets and approved each one of his disposable prime ministers), this group of deputies may be
prepared to go a step further in seeing through key pieces of legislation which will
help Russia implement the next stage of critical structural reforms, without which
the country will continue to stagnate.
Caution must be taken at this stage in analyzing the new Duma and its
relations with Mr. Putin, as both the legislature and the presumptive president
have not yet shown their true colors. On the surface, the outcome of the 1999
Duma elections is a mixed bag at best. Nevertheless, some general trends may be
separated out. On the (potentially) positive side of the ledger, the following should
be mentioned:
•
•
•
122
A new “party of power”—the pro-government Unity party—received the
second-largest percentage of votes in the party list voting and could constitute a powerful counterweight to opposition from either the communists
or others. To the extent that this group of inexperienced unknowns can
fashion themselves into a disciplined and responsible centrist party, the
impact will be positive. However, the key sponsors of the party itself—
renowned financier and “oligarch” Boris Berezovsky and a collection of regional governors, not all of whom are known for their responsible views—
gives reason to believe that this group of deputies and others independents
who may attach themselves to it in the future (the so-called group of “Peoples’
Deputies”) could turn out to be a highly unpredictable force.
The unexpected success of the Union of Right Forces—garnering more
than 8 percent of the popular vote in party list voting—was a powerful shot
in the arm for the reform camp, and means more practically that a strongly
pro-market bloc will be able to tug the country in the direction of greater
economic liberalization, restructuring, and effective management. Putin has
already signaled that he will rely on people associated with this bloc (former
PM Kiriyenko, former PM Gaidar, UES head Chubais) to provide policy
recommendations in several areas of economic restructuring.
The share of seats occupied by Vladimir Zhirinovsky’s radical nationalist
bloc, the Liberal Democratic Party of Russia (LDPR), shrunk from 11 percent to 4 percent, demonstrating that extremist ideas are increasingly less
attractive to the Russian electorate. Moreover, Zhirinovsky’s open support
of Putin and his voting record of constant support for the Kremlin further
suggests that his downsized bloc will not stand in the way of cooperation on
most issues before the Duma.
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
•
•
•
The communist party, while still holding the largest number of seats, will
be less able to dominate this Duma. Whereas in the previous Duma they
held 35 percent of the seats, today they hold closer to 25 percent. Moreover,
satellite parties which attached themselves to the communists, giving them
a veritable majority, are now more spread out among other, more centrist
blocs such as Fatherland-All Russia.
Indeed, on key economic questions the main Duma factions and the government have established broad agreement, though specific policy solutions
may differ. This is true on such subjects as: (1) lower corporate taxes, (2) tax
simplification and stabilization, (3) increased transparency, (4) increased
spending on science and education, (5) banking reform to induce domestic
lending, (6) addressing the non-payments problem, (7) and preserving private property.
Overall, this Duma has a far weaker ideological identity than the last one
and is less likely to poke a stick in the government’s eye at every opportunity just to demonstrate its displeasure and defiance.
On the (potentially) negative side of the ledger there are these items:
•
•
•
The Yabloko party, headed by democratic rights advocate Grigory Yavlinsky,
won a smaller share of the vote than expected. Most analysts see this as a
direct consequence of his bold and impolitic anti-war stance on Chechnya,
which cost him support among independent voters and his own formerly
loyal electorate. The Duma needs principled voices like Yavlinsky’s and the
country needs his “deep bench” of economic specialists and reasonable
policymakers to ensure that the country does not stray too far from the
democratic, socially oriented market path.
The issue of constitutional reform, which promised to unite the Duma
and, if successfully implemented, reinforce the lawmakers’ sense of relevance
in the policymaking process, has been set aside. Acting President Putin has
already signaled that he does not want to consider the issue until the state
apparatus has been re-strengthened, and thus there is a strong likelihood
that we will have the “Yeltsin system without Yeltsin.” That could spell
gridlock and further stagnation if agreement on policy solutions cannot be
worked out cooperatively among the Kremlin and the various Duma factions.
After a tense opening session of the Duma on January 18, the two largest
parties—the Communist Party and Unity—decided to exert their dominance by shutting out the smaller factions from the negotiations over who
should become the Duma’s next speaker and who should head the various
Duma committees. The smaller factions, including Yabloko, Union of Right
Winter/Spring 2000 – Volume VII, Issue 1
123
Alan Rousso
Forces, and Fatherland-All Russia, walked out of the session and continued
their boycott for over a week. Not only did this shatter the illusion that
there would be broad consensus in the legislature, but Acting President
Putin’s presumed complicity in the deal—he publicly supported the candidacy of Gennady Seleznev for the Duma speaker post he eventually was
awarded—raised the specter of a drift toward the left and a conscious effort
to marginalize the democratic right. The lasting impact of the deal is that
many plum committee assignments, especially in the area of economic policy
making, went to communist deputies and others to politically inexperienced Unity deputies.
To this must be added a few unknown factors, such as the role the Fatherland–All Russia coalition will carve out for itself in the Duma and the way in
which the independent deputies—who took 122 of the 225 total seats in the
single mandate district voting—will align themselves among the main existing
factions. There are, as expected, already signs of fracture in Fatherland-All Russia,
which was a group united more by their interest in seeing Mr. Primakov become
president and forming a new “party of power” than by a discernible legislative
agenda. When it became apparent that Primakov’s chances were dwindling and
Putin was a shoo-in, All Russia quickly announced its support for Putin in the
presidential election. Moscow Mayor Luzhkov, who created Fatherland to promote his own presidential hopes, has now officially dropped out of the race and
will probably offer his cautious support to Putin as well. If Fatherland-All Russia,
which thanks to its gains in the single mandate district races holds only slightly
fewer total seats than Unity in the current Duma, can re-unite around a common
set of policy themes, they will become an important centrist swing coalition.
In the final analysis, the outlook for Russia in the year 2000 is mixed. Without question, the new Duma appears considerably more pro-government than
the last one, but we won’t know what that means until we know more about what
the government’s main priorities will become and how it will seek to implement
them. There is a drive on the part of the Kremlin to forge political consensus and
build social support for their program, a key missing component in the Yeltsin era
of reforms, but this could spell the rise of a government of compromise and the
inability to make the hard choices and political trade-offs necessary to reform the
Russian economy. Already there are appears to be an expression of willingness to
put off structural reform until state capacity can be built up, calling to mind the
Chernomyrdin era deferring painful policy choices. There is momentum behind
the need to develop a long-term development strategy, which is being sponsored
by some of the best economic minds in the country and concentrated in a Kremlin-sponsored think-tank, but people close to the new organization describe it as
124
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
an unwieldy and feckless bureaucracy-in-the-making which thus far has managed
to produce little more than talk. Putin seems to have the capital city, including
Mayor Luzhkov, wrapped around his little finger, but even success in finding
workable policy solutions may grind down in the later and more important phase
of seeing these policies implemented in the far-flung regions of Russia which are
still far more answerable to powerful local elites than to the center.
The question remains who Putin will decide to make his political allies and
who will become his political foes. All the happy talk thus far about preventing
social discord is no more than campaign pap. There will be winners and losers in
the next phase of Russian reform, and the losers will not go down without a fight.
Will Putin come out swinging after the election in March? Time will tell. WA
Notes
1. For a particularly gloomy account of the entire post-communist record after a decade of
reform, see the UN Development Program’s “Human Development Report for Central and Eastern Europe and the CIS, 1999” (New York: UNDP, 1999).
2. Figures quoted in Leon Aron, “Is Russia Really Lost,” The Weekly Standard (October 4,
1999); reprinted on Johnson’s Russia List, No. 3535, September 30, 1999.
3. For a persuasive argument along these lines, see Michael McFaul, “The Perils of a Protracted
Transition,” Journal of Democracy, volume 10, number 2 (April 1999), pp. 5–18.
4. For a detailed analysis of the key elements of party platforms prior to the 1999 Russian
Duma election see the “Primer on Russia’s 1999 Duma Elections,” Michael McFaul, Nikolai
Petrov, and Andrei Ryabov, eds., (Carnegie Endowment for International Peace, 1999).
5. In a comment recently published in the Financial Times, Stanley Fisher, then deputy managing director of the International Monetary Fund, wrote that “[m]uch has been achieved in
Russia…[there are] freer domestic markets, an economy open to trade, and … about 70 per cent
of output comes from the private sector. There is a functioning central bank, a treasury beginning
to control government spending, fiscal federalism, and stock and foreign exchange markets. Slowly,
imperfectly, and unfortunately with too much corruption, a private economy and middle class are
emerging after 70 years of communism.” See the Financial Times, 27 September 1999. Others
who have tended to see the glass as half full on the Russian economy include Anders Åslund, How
Russia Became a Market Economy (Washington, DC: Brookings Institution, 1995); Brigitte
Granville, The Success of Russian Economic Reforms (London: Royal Institute of International Affairs, 1995); Richard Layard and John Parker, The Coming Russian Boom (New York: The Free
Press, 1996); and Maxim Boyko, Andrei Shleifer and Robert Vishny, Privatizing Russia (Cambridge: MIT Press, 1995).
6. There are three hotly debated issues which this essay will not address, as they have no good
answer and tend to distract from serious analysis. They concern (1) the speed of reforms—did
“shock therapy” involve too much shock and not enough therapy?; (2) the depth of reforms—did
reformers go too far or not far enough in their efforts?; and (3) the sequence of reforms—did
reformers put the cart before the horse in introducing some features of a market such as rational
prices and private property—before establishing the institutions necessary to support normal
market relations? For an informative survey of these issues which dispels many of the myths about
Winter/Spring 2000 – Volume VII, Issue 1
125
Alan Rousso
the right way to reform, see Simon Commander and Timothy Frye, “The Politics of Economic
Reform,” EBRD Transition Report 1999 (London: European Bank for Reconstruction and Development, 1999), chapter 5.
7. Such societies have been referred to as praetorian by Samuel Huntington and others. See
Huntington, Political Order in Changing Societies (New Haven, CT: Yale University Press, 1968).
For an excellent dissection of the system Yeltsin built, see Lilia Shevtsova, Yeltsin’s Russia (Washington, DC: Carnegie Endowment for International Peace, 1999).
8. For a useful discussion of emerging praetorian patterns in the post-Soviet states and their
international consequences, see Jack Snyder, “Averting Anarchy in the New Europe,” International Security, volume 14, no. 4 (Spring 1990), pp. 5–41.
9. On general guidelines for creating institutions for a market economy, see Adam Przerworski,
Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America
(Cambridge: Cambridge University Press, 1991), especially chapter 4; and Stephen Haggard and
Robert Kaufman, The Political Economy of Democratic Transitions (Princeton, NJ: Princeton University Press, 1995). For an application to the Russian case, see Michael McFaul, “State Power,
Institutional Change, and the Politics of Privatization in Russia,” World Politics, volume 47, no. 2
(January 1995), pp. 210–43.
10. For an extremely critical view of the reformers’ bulldozer techniques, see Dmitri Glinski
and Peter Reddaway, “The Ravages of ‘Market Bolshevism,’” Journal of Democracy, volume 10,
no. 2 (April 1999), pp. 19–34.
11. This point and others of relevance (but little recognition) are made in a very useful blow-byblow account of the reform effort by Matt Bivens and Jonas Bernstein, “The Russia You Never
Met,” Democratizatsiya, volume 6, no. 4 (Fall 1998).
12. At the World Bank’s Conference on Development Economics in April of 1999, the Bank’s
Senior Vice President and Chief Economist, Joseph Stiglitz, delivered a withering critique of the
Russian reform team which concentrated almost exclusively on their failure to properly understand the politics of successful economic reform, especially their failure to create a new social
contract between the rulers and the ruled. See Joseph Stiglitz, “Keynote Address” World Bank
Conference on Development Economics, April 28–30, 1999. Text reprinted on Johnson’s Russia
List, Nos. 3317 and 3318, June 1, 1999.
13. This is a major concern noted in Haggard and Kaufman, op.cit.
14. The originator of this powerful argument is Joel Hellman, “Winners Take All: The Politics
of Partial Reform in Postcommunist Transitions,” World Politics, volume 50 (January 1998), pp.
203–34. Also see Anders Åslund’s argument on rent-seeking, “Russia’s Collapse,” Foreign Affairs,
volume 78, no. 5 (September/October 1999), pp. 64–77.
15. Such subsidies included the practice of allowing loss-making enterprises to run up large
payments arrears to gas and electricity monopolies and then permitting the utilities to pay taxes in
non-cash “off-sets.” This gave rise to a non-payments crisis and the proliferation of barter in the
economy, while also serving as a drag on the federal budget which was already short on revenue
thanks to unstable tax legislation. A recent World Bank report on these micro-economic distortions was noted by John Thornhill in the Financial Times, February 22, 2000. For more on the
barter economy in Russia, see Clifford G. Gaddy and Barry W. Ickes, “Russia’s Virtual Economy,”
Foreign Affairs, volume 77, no. 5 (September/October 1998), pp. 53–67.
16. Bivens and Bernstein, op.cit.
17. Of particular note is U.S. policy in the former Soviet states, which often found Washington
taking the side of the former Soviet republics in their disputes with Moscow and seemed to consciously ignore Russian interests in the oil producing regions in the south where the United States
pushed for pipeline construction plans which bypassed Russian territory. This looked very much
like a modern-day version of capitalist encirclement, particularly to hard-line foreign policy elites
whose views were more and more predominant after 1996 under foreign minister Evgeny Primakov.
126
The Brown Journal of World Affairs
Russia’s Transformation: The Prospects for Democracy
18. In the summer of 1999 the story made the rounds that Al Gore dismissed an internal
intelligence report (with a barnyard epithet scrawled at the top) which included detailed corruption allegations against Prime Minister Chernomyrdin, his partner in the Gore-Chernomyrdin
Commission.
19. For a detailed, and jaundiced, elaboration of American efforts in this area, see Janine Wedel,
Collision and Collusion: The Strange Case of Western Aid to Eastern Europe 1989–1998 (New York:
St. Martin’s Press, 1998).
Winter/Spring 2000 – Volume VII, Issue 1
127
Alan Rousso
128
The Brown Journal of World Affairs